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Microsoft buys Nokia Devices and Services for $7.2 billion

Microsoft is to buy Nokia's Devices and Services business, as well as license the companies patents and mapping services, for $7.2 billion in cash.

Microsoft will pay EUR 3.79 billion for "substantially all" of Nokia's Devices and Services business and a further EUR 1.65 billion to license patents, for a total of EUR 5.44 billion, with the deal completing in Q1 2014.

Nokia CEO Stephen Elop will step down from his position to take the role of executive vice president of Devices and Services. In total, 32,000 Nokia staff will transition to Microsoft.

"It's a bold step into the future - a win-win for employees, shareholders and consumers of both companies," commented Ballmer. "Bringing these great teams together will accelerate Microsoft's share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services."

"In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution."

Julie Larson-Green will continue to oversee the Devices and Studios team at Microsoft, including the impending launch of the Xbox One.

Microsoft will acquire Nokia's Smart Devices division, including the Lumia brand and products, which have sold 7.4 million units. It also acquires the Mobile Phones business from Nokia, which had sales of 53.7 million units in the second quarter of 2013.

The full email to staff from Ballmer can be read below:

From: Steve Ballmer

To: MS FTEs

Date: Sep. 2, 8:00 PM PDT (Sep. 3, 6:00 AM EET)

Subject: Accelerating Growth

We announced some exciting news today: We have entered into an agreement to purchase Nokia's Devices & Services business, which includes their smartphone and mobile phone businesses, their award-winning design team, manufacturing and assembly facilities around the world, and teams devoted to operations, sales, marketing and support.

For Microsoft, this is a bold step into the future and the next big phase of the transformation we announced on July 11.

We are very excited about the proposal to bring the best mobile device efforts of Microsoft and Nokia together. Our Windows Phone partnership over the past two and half years has yielded incredible work - the stunning Lumia 1020 is a great example. Our partnership has also yielded incredible growth. In fact, Nokia Windows Phones are the fastest-growing phones in the smartphone market.

Now is the time to build on this momentum and accelerate our share and profits in phones. Clearly, greater success with phones will strengthen the overall opportunity for us and our partners to deliver on our strategy to create a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most.

We have laid out Microsoft's strategic rationale for this transaction in a presentation that I encourage you to read.

This is a smart acquisition for Microsoft, and a good deal for both companies. We are receiving incredible talent, technology and IP. We've all seen the amazing work that Nokia and Microsoft have done together.
Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we expect a smooth transition and great execution.

As is always the case with an acquisition, the first priority is to keep driving through close, which we expect in the first quarter of 2014, following approval by Nokia's shareholders, regulatory approvals, and other closing conditions.
But I also know people will have some questions about what happens post-close. While details aren't final, here is what we know, and how we're generally approaching integration:

1. Stephen Elop will be coming back to Microsoft, and he will lead an expanded Devices team, which includes all of our current Devices and Studios work and most of the teams coming over from Nokia, reporting to me.

2. Julie Larson-Green will continue to run the Devices and Studios team, and will be focused on the big launches this fall including Xbox One and our Surface enhancements. Julie will be joining Stephen's team once the acquisition closes, and will work with him to shape the new organization.

3. As part of the acquisition, a number of key engineering leaders will be joining Microsoft from Nokia, reporting to Stephen in his new capacity: Jo Harlow, who will continue to lead the Smart Devices team. Timo Toikkanen, who will continue to lead the Mobile Phones team. Stefan Pannenbecker, who will lead Design. Juha Putkiranta, who will lead the integration effort on Nokia's behalf

4. Regarding the sales team, we plan to keep the Nokia field team, led by Chris Weber, intact and as the nexus of the devices sales effort, so that we can continue to build sales momentum. After the deal closes, Chris and his team will be placed under Kevin Turner. We will develop a single integrated team that is selling to operators, and there may be other integration opportunities that we can pursue. Kevin will work with Chris Weber and Chris Capossela to make those plans.

5. Our operating system team under Terry Myerson will continue unchanged, with a mission of supporting both first-party and third-party hardware innovation. We are committed to working with partners, helping them build great products and great businesses on our platform, and we believe this deal will increase our partner value proposition over time. The established rhythms and ways of working between Terry and his team and the incoming Nokia team will serve us well to ensure that we do not disrupt our building momentum.

6. We are planning to integrate all global marketing under Tami Reller and Mark Penn. It is very important that we pursue a unified brand and advertising strategy as soon as possible.

7. Finance, Legal, HR, Communications, DX / Evangelism, Customer Care and Business Development will integrate functionally at Microsoft. Sourcing, customer logistics and supply chain will be part of Stephen's Devices organization. ICM / IT will also integrate functionally for traditional IT roles. We will need to work through the implications for factory systems given the differing manufacturing processes and systems at both Nokia and Microsoft.

8. We plan to pursue a single set of supporting services for our devices, and we will figure out how to combine the great Nokia efforts into our Microsoft services as we go through the integration process.

9. There are no significant plans to shift where work is done in the world as we integrate, so we expect the Nokia teams to stay largely in place, geographically.

10. Tom Gibbons will lead the integration work for Microsoft.

While today's announcement is big news, we have to stay heavily focused on running the current business. We have a huge fall and holiday season ahead of us, so we need to execute flawlessly and continue to drive our business forward. I have no doubt we will.

Ha! I just KNEW keeping my N-Gage QD was a good idea... but it didn't morph into a Windows Phone just yet, damn. And yeah, I do own a QD. I got it for the games, as I make maybe four or five mobile calls a year, tops.

This was no surprise. M$ was already positioning itself to to battle GOOGLE and Motorola, and acquiring NOKIA was the first step. Android has made inroads into Windows Phone business, and since they can't stop Apple iOS , they have to go against Android.
Promotion of Windows phone has been an issue, because their audience is too busy on their GALAXY 4's and iPhones to notice. Even sponsors of M$ products (Mountain Dew giving away XB1's) ignore M$ Windows Phone users, as they couldn't use the M$ Tag system (which are like QRC codes, except more colorful) So awareness and attention to details are what will be needed to put M$ in the drivers seat again.

Let's not forget Microsoft does own Skype.
Let's not forget Microsoft does make Lync.
This has all the markings of a be all end all business telephone system solution. Smack those pesky IP based cell phone system providers before they grow too large.

On the private consumer end, it will probably take years until Microsoft gains a foothold.

Offers may have been made and rejected in the background.
One comment I seen is that the board looked at the offer and decided it was a good win for the shareholders.
Remember Nokia has a chunk of change in the bank and could continue to make losses for a while longer or they can shed the loss making side of the business and focus on the profitable network side as they now own that outright.

If Ballmer has saddled MS with a whole lot of debts and failed division/companies only to just jump into a 'retirement'! board position with big retainers then the industry deserves all it seems to be heading towards.

I always wondered why the games media never likes reporting the full 'past' record of executives - when you find out that most saddle their previous employers with debt and failed plans, and when questioned (or caught) run from their job... or retire!!!

Right now with the interest rates being so low alot of companies who have liquid assets (including cash in the bank) are taking on debt rather than relocating the cash.
It helps avoid taxes but it also helps the over all credit rating of the company as well.

Not all debt is bad and at one stage MS had over $54billion in liquid assets they could easily call on though I think its closer to $35-$40 billion after buying Skype and some other stuff but I have not really looked in a long time.

is there room for the windows phone versus apple and android? Im not sure. After all android is now the power house controlling 80% of that market., the rest are loyal apple users, so where do you gain market share?

Edited 1 times. Last edit by Todd Weidner on 3rd September 2013 2:58pm

This has been on the cards but Nokia's shareholders will be pissed but it's great business for Microsoft. Nokia's patents are worth 5 billion alone. Does this also include them and if not who owns them?

Update: Actually now that I have thought on it, I wonder if Balmer resigning and promising Elop the job in a year was a part of the deal. The timing couldn't just be a coincidence.

From Android. There are some good Android devices out there, but there's a lot of shite too. "Cheap and good" could hive off a lot of that quite easily, but it won't be MS doing that. I was holding out for BB10 but they seem to be making no effort to do much of anything after a good re-entry.

@Todd - Next to nothing on a 2 year contract with a minimum spend is not the same as cheap and good for the pre-pay market.
That is dominated by what another site calls "landfill android" and leads to a hugely fragmented experience for the platform.
People expect the low end devices to run everything the halo devices can but in alot of the cases the end experience leaves alot to be desired.

This is an areas Nokia was making strides in with their lower end yet quality offerings.
Sure there is some drawbacks but its what Nokia was great at in the past, a phone for every price point.

I have been trying to get someone from microsoft to let me publish my game on Windows Phone/XBLA for a very long time now...it's pretty much impossible to even get someone to reply, let alone look at your game.

Unless they open up publishing a little more then I can't see it ever being a success....I love WP, its a very usable device, but releasing a game without xbox live support means it doesn't get the exposure it needs to make it worth while.

When it comes to pricing,
Nokia sells a wonderful 520 around €120 without contract. and 620 around €200. (actually even less now) They perform the same as 720, in fact, as good as 820 or 92x and 1020. Just half the RAM. Most games and apps, (that is over 90% so far) are designed to be compatible with both tiers in mind. (not dumb down the high Tier, but optimize a specific version for the lower one, take Halo: Startan Assault for example)

Lumia 520 and 620, and most definitely the new huge screen 62x are very competitive towards Samsung. So much, that even Apple was forced to jump in with alower cost Lumia lookalike.

Considering the Nokia RT tablet alone, this is a huge thing for Microsoft.
After Nokia proved they could create a tablet i think that was the thing that finalized the deal.

When it comes to tools and processes
In my oppinion, (Visual Studio even the express version) and cross device and hardware/resolution compatibility, Microsoft can't be beat. They specialize in exactly that. This is a great opportunity for Microsoft to get their hands on a team with immense mobile and design knowhow and this can benefit all their portable products!

Edited 1 times. Last edit by Yiannis Koumoutzelis on 3rd September 2013 5:40pm

This is excellent news - I've owned a few Windows Phones and Nokia seem to be supporting it a lot more enthusiastically in software and exclusives than the likes of HTC. My recent purchase of a Nokia 925 hasn't disappointed and I'm currently looking into creating apps for the platform with C# - Microsoft have a *lot* of excellent support on their Dev Center with resources, video tutorials and the like.

The only thing I find in any way bizarre or surprising about the deal is the lack of using Nokia's name for smartphones (yet permitted for feature phones) considering they have acquired the entire devices business.

I would be equally surprised if the same happened in Google's deal to buy Motorola. Furthermore, Nokia can use their name again for phones at the end of 2015, even if this means licensing it.

As for the deal itself, it became obvious that Elop would make the company an acquisition target for Microsoft before moving back to his former employer. That said, with Nokia's mobile fate completely tied to Windows, the resources now exist to fight Apple and Google with the third ecosystem.

Edited 1 times. Last edit by Adam Campbell on 3rd September 2013 7:28pm

@ Adam The resources exist, but they're far too late to the game to compete. Massive app ecosystems built up over half a decade are an insurmountable barrier for Microsoft, who still isn't quite sure what they want to be. They are juggling 3 operating systems at once versus two for Apple and Google (both of which have much clearer marketing and definition between their OSes), and none of them have even 1/100th the developer support.

Their phones don't compete on the high end despite the price (the Lumia 1020 is an insane $300 despite a small 720p screen, low power, and crazy bulk all for a silly camera 99% of people won't care about). They barely even exist on the low end and medium end (keep in mind a GS3 is anywhere from free to $30 on contract on any major carrier now). Windows RT is a nonstarter, and Windows 8 is a very slow one. Microsoft has been blocked at every turn by competitors whom they were FAR too slow to react to. Buying Nokia may give them more ammo to fire, but at this point it's a galleon fighting a pair of battleships. They'll be lucky if they can even stay afloat.

Computing is moving away from the desktop and into the pocket.
The first computing device that many people see and use is a smartphone. There are now about two billion of these devices in use in the world.
Both Nokia and Microsoft were caught out by this change. Windows Mobile and Symbian were both awful. Apple and Google dominated.
But now Nokia and Microsoft are fighting back together. WP8 is widely considered to be the best mobile OS and the Lumia range are well liked and have seen excellent sales growth. The graph sees them overtaking Apple for the #2 OS slot.

so Microsoft/Nokia advantages: Excellent OS integrated with the desktop (Windows 8), the living room (Xbox) and the cloud. Excellent devices. Excellent global distribution. Huge resources of every kind.

Microsoft/Nokia disadvantages: Coming to the party late they lack infrastructure and ecosystem and must catch up. Are they too big to have the agility needed to beat Apple and Google in a very rapidly changing industry? Will the two corporate cultures integrate well?

@Bruce - Actually computing is moving out of the desktop and going everywhere.

TV, clothes, desktop, pocket, tablet, even virtually to the cloud. Individual devices will be less and less important.

The company that will be the market leader will be the one with an OS which is strongest across all. i.e. either Google or Microsoft.

Plus Nokia wasn't caught out, I did an interview with a Symbian developer who did a lot of contract work with Nokia and he said basically that the desktop will be replaced by the phone and they where the developers of Windows on phones. They were just complacent.

However I still prefer Windows 7, my iPhone and probably will get a PS4 so there's a good chance the markets will never converge.

I think people are flipping out at the fact that general purpose computing is possible with handheld devices.

Canonical have made a fantastic demonstration with the Ubuntu Edge - a mobile phone that is also a complete desktop computer. So Bruce is right, general purpose computing power has moved to the pocket. I can see no reason why people can't just place their phones in front of wireless screens and connect to wireless keyboards when they want to type up their homework, coursework or reports.

The general purpose computing power of a desktop for the average consumer is somewhat obsolete. The only features of the desktop they need are the peripherals, the large screen and sturdy desk to fit stuff on. But until we've reached past that point of diminishing returns I believe there is still a market for the cutting edge and mobile will always be trailing behind.

Maybe we're approaching that point in the coming generation. I know I'm not that excited about the graphical possibilities of the PS4, though I would love to see real time ray tracing!

Adam The resources exist, but they're far too late to the game to compete. Massive app ecosystems built up over half a decade are an insurmountable barrier for Microsoft, who still isn't quite sure what they want to be.

is there room for the windows phone versus apple and android? Im not sure. After all android is now the power house controlling 80% of that market., the rest are loyal apple users, so where do you gain market share?

The market is still growing, still maturing and there is space. People are always looking for alternatives, looking for better and looking for the best fit in their digital lifestyle.

Microsoft have always had the ability to make strides in this area and they can do oh so more with a clever, switched on strategy. I feel the fact Windows Phone is the fastest growing OS at the moment, the position they can find themselves in with Nokia and the Lumia brand and the variety of online, messaging, media and gaming services they offer, its all there to be taken.

I think the market has potential for AT LEAST an Apple, Microsoft and Google ecosystem. Particularly with an expected decline in the area of Apple, this could further be enhanced if they play their cards right.

I don't believe in the word "insurmountable" when we're dealing with a market with this much depth and potential. Trends and innovations are also incredibly fluid, I don't think there is a complete lock-down on "the ecosystem" yet and certainly not the devices themselves. What Microsoft offer in Windows Phone 8 is pretty damn good, add in Nokia's design - new Phablets and Tablets added to the repertoire, I'm expecting big gains.

The only question mark I have is what will become of their partnerships with third party manufactures as these could do with a boost. Increases there could be key to really eating into iPhone market share and not just Nokia phones.